Veeva Up 4% on Fiscal Q1: Approaching a Threshold of Scale

By

Tiernan Ray

Updated May 25, 2017 6:28 p.m. ET

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[Updates with comments from CFO and chief marketing officer at bottom of post.]

Shares of life sciences cloud software vendor Veeva Systems (VEEV) are up $2.26, or almost 4%, at $64, in late trading, after the company this afternoon reported fiscal Q1 revenue and profit, beat with its outlook for this quarter, and also raised its full-year outlook.

Following the report, company executives told me they believe they are now on their way to a meaningful threshold of revenue -- the $1 billion mark -- reached by very few cloud computing companies.

Revenue in the three months ended in April rose 32%, year over year, to $158 million, yielding EPS of 24 cents.

Analysts had, on average, been modeling $152 million and 18 cents per share.

For the current quarter, the company sees revenue of $163 million to $164 million, and earnings per share of 20 cents. That compares to the average estimate for $160 million and 19 cents.

For the full year, the company now sees revenue of $665 million to $669 million, which is higher than its prior outlook for $655 million to $660 million. For profit, it now projects 82 cents to 84 cents, on a non-GAAP basis, up from a prior forecast for 78 cents to 80 cents.

CEO Peter Gassner called the results “a great quarter across the board,” while CFO Tim Cabral said it pointed to the company’s “highly efficient operating model,” and he noted the company’s “material cash flow” of $142 million, which was boosted by $70 million of accounts receivable added to $36 million of net income.

Update: CFO Cabral was kind enough to take a moment to talk with me by phone following the company’s conference call with analysts. He was joined by Veeva’s chief marketing officer, Nitsa Zuppas.

Said Cabral, "In general, Q1 was another strong, consistent quarter for Veeva."

"We obviously have a substantial opportunity across multiple large markets,” he said, adding the company has a “proven innovation engine in both Vault and Vault platform, and the commercial cloud side as well.”

Commercial cloud in this case is a short-hand for everything other than the “Vault” product, Veeva’s newer offering.

I asked Cabral what he meant by “multiple markets,” and he clarified that there is the potential for, some day, the opportunity outside life sciences.

“But even within life sciences, we are bringing enterprise business applications to multiple critical areas, including the commercial side of things, the clinical, the quality side, regulatory, and medical.” Each of those areas within life sciences are in a sense a “market,” because “in past, they were served by different vendors, by multiple niche players, the old legacy technology, that’s what I mean,” notes Cabral.

The company sees an opportunity outside the life sciences, said Cabral, that "while it’s not a vertical focus, it’s a business domain focus,” and that is the area of “quality” of product. Veeva has had early success with tools for quality control in verticals such as chemicals, food and beverage, and consumer packaged goods.

Zuppas said investors should "look at the scale” of the company’s operations. “We are certainly at a place now few enterprise cloud companies have achieved:

When you take a look at the goal we have of revenue of a billion dollars in 2020, there are basically four enterprise cloud companies that have hit that threshold: Salesforce (CRM), Workday (WDAY), LinkedIn, and ServiceNow (NOW). I think there are two things going on there. One, it’s very early days in cloud. And two, we are in very good company in terms of the quality of market opportunity we have before us, and the quality of our execution.

Cabral noted the company is having rare success with a “second act” — Vault, the newer product offering. It is now 36% of revenue, up 7 percentage points from a year prior. "Vault in life sciences is bigger than the commercial cloud opportunity, and when you add on things outside life sciences, it ultimately could become a multiple of the commercial cloud addressable market,” he said.

I noted the $70 million receivables item in the cash flow statement. Cabral clarified that the company tends to see this big surge of collections in Q1 because of the ways budgeting works for customers that have become bigger and bigger accounts:

If you look at our underlying renewal base, it is heavily shifted toward late Q4. And some is falling into Q1 now. We expect billings for the entire year will be about 35% to 40% of the total in Q4, as a result, you see Q1 being the biggest cash flow quarter of the year. Our $128 million in operating cash flow for the year [excluding an adjustment for new accounting standards] is about 75% to 80% of the full-year total. So, billings are heavily seasonal in Q4, and cash flow is extremely seasonal in Q1. Some of that is a reflection of our industry, and the size of some of the customers — we do have some very large ones now. The other dynamic that’s happened, over the last 2 to 3 years, is that those customers that started out as small customers, at the beginning they didn’t care about when their renewals were billed. It was okay if it crossed their budget years. As they’ve now become bigger customers, they've started to care more about that. We’ve seen large, 8-figure customers moving their renewal date to align with their budgetary year time frames. It’s the same thing you’ll hear if you talk with Workday or Salesforce.

Following the conference call, Veeva stock is up $2.20, or almost 4%, at $63.94.

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Veeva Up 4% on Fiscal Q1: Approaching a Threshold of Scale

[Updates with comments from CFO and chief marketing officer at bottom of post.

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